Park Dental Partners, Inc. Common Stock (PARK) Q4 2025 Earnings Report, Transcript and Summary

Good morning, and welcome to Park Dental Partners Fourth Quarter and Full-Year 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]. Certain statements made during the call today constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the company's earnings press release issued yesterday and in the company's filings with the SEC. The forward-looking statements made today are as of the date of this call, and the company does not undertake any obligation to update the forward-looking statements. Today's call will also include certain non-GAAP measurements. Please see the company's earnings press release for a reconciliation of the non-GAAP financial measures. The press release is available on the company's website. I will now turn the call over to Mr. Pete Swenson, Chief Executive Officer and Chair of the Board for Park Dental Partners, Inc. Sir, you may begin.

Thank you, Olivia. Good morning, everyone, and thanks for joining Park Dental Partners Fourth Quarter Earnings Call. Joining me today is our CFO, C.J. Bernander. First and foremost, I want to start off by recognizing our doctors and team members across the organization. Our people are our greatest asset. Every day in every practice, you show up with a shared commitment to deliver the best patient experience to every patient every time. That consistency is the foundation of our reputation, our performance and our ability to grow. I'm grateful for the professionalism and dedication that our teams bring to patients and to one another. Secondly, we're proud that the majority of our shares are held by our doctors and team members. In January, we launched our employee stock purchase plan, giving our doctors and team members another way to share in the value we create together. For those who may be newer to Park Dental Partners, I'd like to take a moment to briefly describe who we are and what makes us unique. We are a dental resource organization built for the long term. Our affiliated practices began serving patients in 1972. This year, 2026 marks our 54th year of combined operations. That longevity reflects a model that has endured over the decades because it's grounded in patient-centered care, a highly collaborative culture and operating discipline. Today, we provide a comprehensive set of business support services to our affiliated dental practices. Park Dental Partners teams handle things like administration, scheduling and billing, collections, facilities so that our doctors and team members can focus on what they do best, provide quality care to our patients. We are patient-centered in everything we do, which leads to high patient satisfaction and retention and ultimately drives long-term value for our shareholders. Importantly, our doctors provide a full spectrum of services in an integrated care model. Our goal is to be able to address the needs of patients over their lifetime, whether it's general or specialty care. Clinical leadership is core to our identity. Our affiliated practices are overseen by 2 outstanding Chief Clinical Officers, Dr. Christopher Steele, who oversees our general dentistry and Dr. Alan Law, who oversees specialty care. We also benefit from the rest of our expanded talent and leadership team, including Jean Lind, our Chief Administrative Officer; Jason Halupnick, who is our VP of Business Development; and Brian Zard, who is our VP of Operations. At the core of our identity is the belief that practicing doctors need to play a central role in the management and the governance of our organization. One tangible example of that is the depth of doctor engagement we have today. 50 of our doctors actively contribute outside of their clinical schedules to help us operate the business efficiently and effectively. They're shaping care standards, training, clinical systems, patient experience and operational improvements. We view this as a significant competitive advantage for our organization. With long-term ownership opportunities, alignment to our mission, vision and values and pathways for growth, we believe our model is compelling to new dental school graduates, mid-career doctors and late career clinicians alike. Now a word on our growth strategy. Our long-term growth strategy is straightforward: increase the number of doctors serving patients. We do this in 3 ways: adding doctors to existing practices, acquiring additional practices and opening de novo or new practices. Today, we have 214 doctors across 3 states, and we believe that we can grow that significantly over time. Looking at the overall industry, we are well positioned to continue growth over the coming years. The U.S. dental service market is estimated to be $173 billion and is growing at roughly 4% to 5% a year. It remains very fragmented. There are an estimated 200,000 licensed dentists in the U.S. and over 2/3 are solo practitioners or small independent groups. We're focused on taking full advantage of our opportunity here to grow. We believe in building market density over time in order to unlock operating efficiencies, expand integrated specialty care services and to strengthen our brands. Our approach to M&A is disciplined, where we prioritize cultural fit and focus on opportunities that we believe have the potential for long-term value creation. Looking ahead, we intend to continue acquiring and opening de novo practices in existing markets to grow our share while entering 2 to 3 new markets over the next few years with a land-and-expand playbook. Turning now to the fourth quarter results. We're pleased with the record year of revenue and adjusted EBITDA. It was a great year that culminated with our IPO in early December. I was pleased with our same practice revenue growth of 5.8% in the year. Our revenue growth rate for the year was 6.4%. This was a great performance, and I believe there's upside to this level of growth as we continue to act on our acquisition strategy. We have a robust pipeline and with a strong balance sheet, we're well positioned to capitalize on the right opportunities. The timing of acquisitions is difficult to predict. While we strive to have a regular cadence of closings, we will not sacrifice our long-term goals to hit certain short-term metrics. Patient retention remains high at 89.9% and reflects the strong relationship between our affiliated doctors and their patients. In addition to solid financial performance, our teams invested in our people and in technology in 2025. Some of the highlights include an investment in our people by launching 3 new learning and development platforms. The first was polished patient experience, which is a program for doctors and clinical team members to improve their patient interaction skills. Second was Charting Your Course, a program to support new graduate doctors as they transition from dental school to clinical practice. Finally, a career development tool that will help support long-term team member retention, which is so important to our business. We continue to invest thoughtfully in technology. Our team completed the implementation of an AI tool called Overjet, which assists our doctors in reading radiographs and diagnosing care. Our team upgraded our workforce management system to UKG, which we expect will drive enhancements to productivity and improve workforce planning. While we're talking about technology, I'll just add that we're excited about the continued benefits that digital dentistry is bringing to patient health outcomes and to the professional satisfaction of our doctors and team members. We also see meaningful opportunity over the coming years to drive efficiency in administrative workflows as we apply advanced technologies, including AI in areas like documentation support, revenue cycle processes and other operational tasks that may reduce friction for our teams. We'll approach this responsibly with a focus on security, compliance and ensuring technology supports not detracts from patient care. Growth in 2025 included the opening of multi-specialty de novo practice in Rochester, Minnesota; and 3 practice acquisitions, 2 in Minnesota and 1 in Phoenix, Arizona, which marked our entry into our third state. We're excited about Arizona, and our strategy there is straightforward, that land and expand approach. As of January, we've entered both the Phoenix and the Tucson markets, partnering with some terrific doctors who share a passion for delivering great patient care. I'll conclude my remarks by reiterating something that I hope resonates with all of our stakeholders. As I mentioned in the beginning, we prioritize patient care. We think long term and are committed to keeping doctors at the center of governance and management. We believe this will translate nicely to increased shareholder returns long term. With that, I'll turn it over to CJ for the financial update.

Thanks, Pete. Good morning, everyone. As Pete mentioned, we had a great year with strong performance throughout. We remain confident in our ability to deliver consistent organic growth while also growing inorganically through a disciplined M&A strategy. For the fourth quarter, revenue was $61.2 million, representing 7.5% growth year-over-year. General practice revenue grew 6.2% to $44.7 million and multi-specialty practice revenue grew 11.3% to $16.5 million. Same practice revenue growth was 6.3% year-over-year, driven by increased patient visits, clinical hours, increased fee and reimbursement growth. For the full-year, revenue totaled $244.5 million, 6.4% growth year-over-year. General practice revenue grew 4.8% to $179 million. Specialty practice revenue grew 11% to $65.5 million and same practice revenue growth was 5.8% for the full-year. From a top line perspective, there's a few other details I'd like to highlight. First, multi-specialty revenue is growing at a faster rate than general dentistry and has been for a number of years. This is driven by our expansion of specialty services into the markets that we operate in and the smaller revenue base that we currently have for that part of the business. Outside of our expansion, we're also seeing increased patient demand for specialty services and expect demographic trends to continue to drive tailwinds for specialty dental services over the coming years. Secondly, we've added 3 practices in 2025. However, 2 of them had no material impact on the revenue in the year since they were deals that were completed on December 31. Thirdly, our clinical schedules operate on weekly staffing models. When comparing periods, there can be variances based on the number of days in operation. For 2025, we had 1 less working day than 2024. Normalizing for the number of operating days, revenue growth in 2025 would have been 6.9% on an apples-to-apples basis versus 2024. Moving to our cost structure, 2 quick definitions for you. Cost of services are expenses incurred within the 4 walls of our practices and include both variable costs such as doctor compensation, supplies, lab fees as well as fixed costs such as occupancy and utilities. General and administrative costs represent our DRO shared services that provide administrative support to the practices. This includes functions such as quality assurance, IT, accounting, legal, patient call support, business development and revenue cycle. During 2025, we did have a few cost items all related to our IPO that I'd like to bring to your attention. IPO transaction costs were a large onetime item in 2025, totaling $2.7 million. These are included in our G&A and are an add-back for our adjusted EBITDA. Also, fourth quarter expenses included $8.8 million in non-cash share-based compensation expense related to the vesting of pre-IPO shareholders restricted shares. Approximately 30% of the pre-IPO restricted shares vested upon the IPO date and the remainder will vest over the next 12 quarters based on continued employment of doctors and management. Share-based compensation shows up in 2 places on our income statement, salaries and benefits in the cost of services area and in G&A. With our IPO, we are now also incurring additional public reporting costs, which started in December. We currently expect our public company cost run rate to be about $400,000 to $500,000 a quarter going forward in our G&A expenses. Inclusion of share-based compensation expense and the increased shares outstanding were the drivers of the EPS decline year-over-year. Share count is another area I'd like to provide you with some color. We ended the year with 4.25 million shares outstanding, which included 1.5 million shares from the IPO. Pre-IPO shares that were unvested as of year-end totaled 2.36 million. Our average diluted shares were 1.94 million for 2025 and 2.49 million for the fourth quarter. Because of share weighting, both amounts reflect only 27 days of the IPO share count. Looking ahead, if all pre-IPO shares fully vest over the next 3 years, our outstanding share count will be approximately 6.6 million shares by the end of 2028, not factoring in any future events. Turning to cash flow and leverage. Our operating cash flows were $17.6 million in 2025, demonstrating the cash flow generation ability of our business. Cash and cash equivalents were $25.2 million as of December 31, which included $18.4 million net cash proceeds from the IPO. We plan to deploy cash towards future growth, utilizing the land and expand concept that Pete highlighted earlier. Our long-term debt was $10.1 million on December 31, which decreased $1.9 million versus prior year. We also maintained a $15 million line of credit, which was undrawn as of December 31. As we announced via 8-K last week, that line of credit was recently amended to do several things, including extending the term from March 2027 to March of 2029 and modifying our debt covenants to be more in line with other public companies, for instance, including share-based compensation as an add-back in the covenant calculation. In regard to those covenants, we operate well below our debt covenants and expect to do so as we move forward. Turning to our 2026 outlook. Our outlook philosophy is to only include same practice growth and completed acquisitions. M&A timing is not easily predictable even with a robust pipeline, thus, we feel it best to only include completed deals in our outlook. The 2026 outlook we've provided includes the 3 acquisitions and 1 de novo practice we completed in 2025, along with the 1 additional acquisition announced so far this year. We expect full-year 2026 revenue to range from $254 million to $258 million, same practice revenue growth of 3.5% to 5%, and we expect adjusted EBITDA to range from $21 million to $23 million or 8.3% to 8.9% of revenue. Again, we expect, but as you know, we cannot assure that there will be more M&A activity as we move through 2026. As always, we'll remain disciplined with a sharp focus on fit, culture, returns and long-term value creation. We plan to update you on our outlook quarterly, incorporating any completed acquisitions in those periods. I'll wrap up my financial comments by saying that overall, we're pleased with our performance in 2025 and the continued momentum across the organization. As we look ahead, we remain focused on supporting our affiliated doctors, increasing the number of doctors we support and allocating capital in a disciplined way towards opportunities that drive long-term value for our shareholders. Now I'll hand it back to Pete.

Thank you, CJ. Becoming a public company is a meaningful milestone, but we view it as the beginning of our next chapter, not the finish line. Since 1972, we've built an organization with deep roots, and we believe access to long-term capital will help position Park Dental Partners for the next 50 years of reinvestment and growth while staying true to our culture and our commitment to patients and clinicians. We're excited about the opportunities ahead and remain committed to creating long-term value for all of our stakeholders. Thank you for your support. With that, CJ and I are pleased to take your questions.

[Operator Instructions]. Our first question coming from the line of Mike Grondahl with Northland Capital Markets.

Maybe just the first question, Pete, if you could talk a little bit about that robust pipeline, maybe how it compares to 6 to 12 months ago?

Sure. Thank you, Mike. I would just say, as we look at our pipeline, you saw some of that yield coming late last year with a couple of closings and then right off the bat here in January with another one in Tucson. I would say good momentum coming into the year. Really looking forward to expanding in Arizona now that we've entered that market, got some great doctors, Dr. Holmes, Dr. Romero, looking forward to working with those teams to identify more opportunities for growth in Arizona beyond Minnesota and Wisconsin.

Can you remind us the team you have working on M&A and looking at these opportunities? How significant is that team?

Last year, actually brought back Jason Halupnick, who was with us. Jason leads that effort for us, and he's responsible for half of the deals that we've closed over time. Jason is supported by an analyst and our overall leadership team is deeply involved, including myself in driving that inorganic growth.

Then maybe lastly, if we looked at the sales cycle for these -- the 3 acquisitions you've done, the 2 at the end of '25 and the early '26. How would you describe the length of that sales cycle? Is it many months, a couple of months from when you maybe initially talk to them to when you can get a transaction done? How has that trended, the sales cycle?

Yes. It varies, as you can imagine, by the size of the transaction, how many owners might be involved. It could be a couple of months in some of the larger opportunities, you can imagine developing relationships for years in your pipeline.

Then maybe just lastly for me. The 3 acquisitions you've announced were single or 2-doc locations. How does the pipeline look from, I don't know, 6 docs or 5-plus doctors? Is there a couple of those or some of those in the pipeline, too?

Yes. I would say, as we described on our roadshow last year, there are different size opportunities, and we're continuing to pursue all of those categories.

Our next question coming from the line of Matt Hewitt with Craig-Hallum Capital Group.

CJ, congratulations on hosting your first quarterly update call as a public company. Maybe first up for me and sticking to the pipeline of opportunities. Could you remind us -- so when you go in and acquire a practice, maybe talk a little bit about how you're able to go in, implement some new efficiency programs and how long it typically takes before you're able to get those new practices up to company margins?

Matt, thanks for the question. This is CJ. Happy to answer it. Consistent with Pete's comments around the size and shape of certain acquisitions, I'd say it depends. We have practices we've acquired where we're achieving -- that are operating very efficiently and effectively, and we're hitting that run rate in 3 months. Then we have other ones that we may be investing in. As Pete said in the roadshow and subsequent to that, our strategy is to operate multi-doctor practices. In the instances and where you're seeing single doctor practice acquisitions, oftentimes, we're looking at how do we add that second doctor or that third doctor. That process does take a little bit of time. It could be 12 to 18 months before we're up to #2 or #3. It's going to depend on finding the right talent fit for that area. What we can confirm is that every deal that we do, we're excited about the opportunity for growing it into the future. I'd say that getting there is going to vary based on deal, but you can think of the quick ones being in that 0 to 3-month range and then some taking longer. We're also looking at how do we set the practice up for success in the long term by growing it out to be a multi-doctor practice.

Thank you for the update on the software. I find that really an interesting opportunity, quite frankly. The software platforms that you described, are those something that you will sell independent of even your own practices? If so, does that create an entry into potential practice acquisitions down the road where maybe you've gotten in with the software and they get comfortable with you and decide, boy, that would make sense for us to be part of the Park Dental platform.

Yes. Great question, Matt. We feel like our technology and software stack is best-in-class. It is a great I'd say, selling point for doctors to look at joining our organization because they're surrounded with the best tools that there are out there. Our goal with those is to allow our doctors and our team members to be efficient, to be effective, to practice at the top of their license. In doing so, we're focused internally right now on those tools and technologies to help drive our organization forward. We're not currently evaluating turning those external, but we do find a tremendous amount of value, both operationally in deploying them and then also as Pete and others are having those conversations from an M&A perspective, we feel like we can go in with our chin up around the tools and technology we surround our teams with and have great conversations with potential doctors.

I would think it's a big differentiator. Well, congratulations on your first quarterly update call, and we look forward to the future ones. Thank you.

There are no further questions. I will now turn the call back over to CJ. Bernander for any closing comments.

Thank you, and thanks, everyone, for attending our first quarterly earnings call. We do anticipate filing our first 10-K in mid- to late March. We appreciate your investment, your interest in our company and look forward to our next interaction with all of you. Have a great rest of your day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.